Most service firms want to be product companies. The allure of recurring revenue and the opportunity to turn an initial product investment into exponential, long-term earnings is powerful and understandable. The irony is that many product companies want high-margin professional services as part of their model.
The path to professional services for a product company is easier than adding a product to a service firm or the transition from a service firm to a product company. Becoming a product company from a service firm is far more challenging than it might appear on the surface because the operating models of service firms and product companies vary greatly. This makes the transition difficult for all service firms and insurmountable for some. Services can be created and executed relatively quickly, easily, and with little investment; creating a product requires the investment of capital, time, and resources. As much as service firms try to make their services tangible through packaging & process, services are still intangible. Products are tangible and can do a set of specific things in a particular way. As a result, services can be easily and quickly spun up and modified. Products are more challenging to create, maintain, and evolve. Being a product owner is a much different existence than being the owner of a service offering.
Services and products do or at least should have one thing in common: they should be created and evolved based on getting and staying close to customers. Services and products should both be initially driven by solving a problem customers care about in a manner they value. Begin by identifying a problem worth solving through a product. In a service firm, that can take different forms. Maybe the way in which you provide a service can be captured in a product for clients to do it themselves. Perhaps you have some manual processes that could be productized and other service firms might want to use the product, too. Or, maybe you work in an industry where you’ve identified a problem that could be solved with a product.
Service firms can probably identify at least a few product opportunities, but this is only a ticket into the product game. Just as with a disruptive startup or corporate innovation initiative, ideas are worth nothing and execution is everything. Service firms lack product execution. They don’t have a product discipline and they don’t know how to be a product owner or manager. Therefore, service firms often create products that don’t solve a problem in a way customers care about and end up with a product that at best is a short-term distraction that ends up collecting dust on the shelf, or at worst, becomes a huge waste of time, money, and energy.
Services firms must start the product journey by establishing the right perspective and expectations. Creating the product, although an important piece, isn’t necessarily as important as understanding how the firm will change to accommodate having a product to market, sell, and support (either in addition to the existing services or on its own). If the plan is to add the product to the existing service mix, how will you go about working it in? Will the current staff be responsible for execution or will you hire new staff who will be exclusively focused on the product?
A service firm’s experience coupled with context around a problem a product can fix is a huge advantage because many times a problem is identified by people who are on the outside looking in and they must spend time initially understanding the problem. Service firms are in a unique position to create high-value products by combining their subject matter expertise with a disciplined product process.